The increase in serum gamma-glutamyl transpeptidase (GGT) is a well known marker of chronic alcoholism in man. We have previously shown that ethanol (180 mM) induces GGT activity 2-3-fold in the C2 rat hepatoma cell line. In this study, we have analyzed the interaction of ethanol with steroid hormones and drugs in this well defined cell culture system. Dexamethasone (100 nM), a synthetic glucocorticoid agonist, completely prevented the induction of GGT by ethanol, but had no effect when added alone. This inhibitory effect was also observed with other corticosteroids, but not with sex steroids; it was prevented by RU 486, a glucocorticoid antagonist. These observations suggest that dexamethasone acts through a high affinity glucocorticoid receptor. Conversely, ethanol did not interfere with the glucocorticoid induction of alanine aminotransferase in the same cell. We have analyzed the metabolism of ethanol in the C2 cells. These cells lack significant alcohol dehydrogenase activity as well as any cytochrome P-450 Alc immunoreactivity. Dexamethasone did not modify the disappearance of ethanol in the culture medium of those cells. We conclude that glucocorticoid hormones interact with ethanol at the cellular level, and that this interaction does not involve a modification of alcohol metabolism.